State releases audit; legislators ask attorney general for Amistad investigation

The long-awaited audits for Amistad America Inc. show an organization defaulting on hundreds of thousands of dollars, lacking enough cash to operate for a month and having “material weaknesses” in its record keeping.

The audits, encompassing the four years from 2009 to 2012, were released Friday and show that the organization has multiple financial weaknesses that could have exposed it to mishandling of funds. The audits do not identify any apparent criminal activity.

“We are reviewing the audit information released today,” Jaclyn M. Falkowski, spokeswoman for the Office of the Attorney General, said Friday in an email. “Following a full evaluation of the available information, and with cooperation and input from relevant stakeholders, we will determine next steps to strengthen the Amistad’s ability to continue its important historical mission.”

Amistad America operates the ship replica whose mission is to tell the story of the 1839 event that ultimately freed captive Africans. The organization lost its nonprofit status in 2012 for failing to file tax returns for three consecutive years.

The state has provided about $8 million in grants to Amistad America and in late June froze its annual $360,000 payment for the 2014-15 fiscal year. The state said at the time that funding would be frozen until the audits were complete, in part so it could determine how to proceed with a new contract with Amistad America. It was unclear Friday whether the state planned to resume payment.

The state-funded audits were called for last summer after Day columnist David Collins discovered and reported that Amistad America had lost its nonprofit status.

The audits provide several examples of “material weaknesses,” including the fact that the organization does not have an accountant who can properly prepare financial statements, does not have anyone checking information entered into the accounting program QuickBooks and does not always create invoices when expenditures are made.

Approvals for employee wage rates are often done verbally or through email, the audit report shows.

The auditing company, CohnReznick LLP, recommended in each instance that Amistad America continue to work with “the recently engaged fee accountant” for the review of the years 2010 to 2013 and on an ongoing basis. The audit states that Amistad America’s management and other officers agreed with the auditor’s findings and are preparing a “corrective action plan.”

“The findings indicate no maleficence and no misuse of funds by Amistad America,” Hanifa Washington, executive director of Amistad America, said in a statement Friday. “The audit findings include a series of recommendations that we look forward to using as we move forward in rebuilding the organization.”

Washington said a corrective action plan will be reported to the auditing firm and the state Department of Economic and Community Development by Aug. 15.

Cash flow problems

The audits also reveal that the organization operated without enough cash to cover one month’s expenses. One way to determine an organization’s financial stability is to measure whether a nonprofit can pay its bills for one month if no additional income is received.

In 2009 Amistad America had $16,358 in cash, which would cover 12 percent of one month’s expenses. In 2010 and 2011 the trend continued and worsened: the organization in 2010 had $123 in cash to cover $107,473 worth of monthly expenses.

In 2012 its cash flow situation improved to $64,338, in part due to a $60,000 loan from “related parties.” That year, Amistad America had enough cash to operate for 1.2 months.

Amistad America also defaulted on multiple lines of credit or was not in compliance with loan terms to the tune of $594,690. It defaulted on a loan from TD Bank in 2010. The terms were renegotiated that year and the interest rate was reduced from 18 percent to 5.25 percent. As of March 31, 2012, Amistad America was not in compliance with the renegotiated terms of the loan.

Amistad America also defaulted on a loan from the Greater New Haven Community Loan Fund and was not in compliance with a loan from Bank of America as of March 31, 2012.

Ocean Classroom Foundation connection

Also on Friday, 25 lawmakers signed and sent a letter to the state attorney general asking him to investigate the relationship between Amistad America and Ocean Classroom Foundation, which announced last month that it would close because two of its three ships needed expensive repairs.

Since November 2012, Amistad America has paid Ocean Classroom $5,000 per month to manage and maintain the Amistad. That contract will expire Aug. 31. Ocean Classroom Executive Director Greg Belanger previously headed Amistad America and organized the relationship between the two organizations.

“The demise of Ocean Classroom Foundation prompted us to request that the attorney general look into irregularities surrounding the Amistad,” said state Rep. Diana Urban, D-North Stonington. “We are focused on protecting the taxpayer and retaining the Amistad as the flagship of the state of Connecticut.”

The letter requests that the attorney general provide lawmakers with copies of all agreements between the two organizations, a complete statement on all liens filed against the Amistad vessel, a copy of all mortgages secured by the Ocean Classroom vessels, and the attorney general’s assurance that the Amistad vessel is not liable for any of Ocean Classroom’s debts.

Ocean Classroom took out a $2.2 million mortgage from Camden National Bank in 2010, the Bangor Daily News in Maine has reported. The foundation made regular payments until about three to five months ago, according to the newspaper.

Urban and state Rep. Ted Moukawsher, D-Groton, have expressed concern about whether Amistad America could be seized by a bank or other entity as one of Ocean Classroom’s assets because of its contract.

Attorney General George Jepsen’s spokeswoman, Jaclyn Falkowski, said in an email that his office had received the lawmakers’ letter and will be working with the governor’s budget office — the Office of Policy and Management — DECD and others to gather the information they requested.

Urban has been the lawmaker most invested in determining where the $8 million in taxpayers’ money went and holding the organization accountable.

“Although I am happy to finally see the audit and I fully expected irregularities and lack of oversight contained in it, I am disappointed that the audit begins in 2009,” said Urban in a press release Friday. “When I asked for the audit it was my intention that it go back to 2006, which is the year that I am convinced the finances started to fall apart.”

Urban said she would be asking that the audit be extended to those years, 2006 to 2009, to get a full picture of the growing financial problems at Amistad America.

According to the audits provided, Amistad America’s net assets, or assets minus liabilities, were $1 million as of April 1, 2008, and dropped to negative $195,135 as of March 31, 2012.

The governor’s administration gave a limited response to the audits on Friday. OPM spokesman Gian-Carl Casa said OPM would review the audits along with the governor’s office, the DECD and the attorney general’s office.

“That is the first step in crafting a plan, in collaboration with stakeholders and the New Haven community, that will protect the state’s investments, the educational mission of the ship and help ensure that vendors get paid,” Casa said in a statement.

j.somers@theday.com

@JohannaSomers1

ASSESSING FINANCIAL HEALTH

In assessing the fiscal health of nonprofit organizations, auditors measure certain financial indicators. The numbers reported by the audit show these results for some such categories from 2009 through 2012.

• Months of cash on hand (number of months the organization can pay its bills if no further income is received): Amistad America had cash equaling 1.2 months' worth of expenses in 2012, after having 0 month's worth in 2011 and 2010 and 0.1 month's worth in 2009.

• Ratio of current assets to current liabilities (a measurement of ability to pay obligations on time): A ratio of 1.0 is desirable. Every year from 2009 through 2012, Amistad America had a current ratio of 0.1.

• Program efficiency ratio (the percentage of resources expended that go toward the programs of the mission): Eighty-five percent is a goal for an efficiently run nonprofit. By 2012, Amistad America had a program efficiency ratio of 61.5 percent, down from a high of 79 percent in 2010.

• Administrative costs ratio (a means of measuring how much of the organizational costs are consumed by management): From a four-year low of 16.3 percent in 2010, Amistad America climbed to 31.1 percent in 2012.